Global oil benchmark, Brent crude, jumped above $57 per barrel on Monday after 11 non-members of the Organisation of Petroleum Exporting Countries, including Russia, agreed to cut their production by 558,000 barrels per day.
Brent, against which Nigeria’s oil is priced, soared to $57.89 a barrel, the highest since July 2015, before falling back to $56.13 as of 7.35pm Nigerian time.
The difference between the international benchmark and Nigeria’s budget benchmark of $38 for this year has now risen a little above $18 per barrel, a development that is expected to boost the accretion to the country’s Excess Crude Account.
The ECA, into which the country saves the difference between the market price of oil and the budget benchmark to provide a cushion when prices fall or extra cash is needed for spending on infrastructure, was rapidly depleted last year as oil revenues plunged.
The balance in the account stood at $2.261bn as of June this year, according to the Ministry of Finance.
The Federal Government has proposed a crude oil benchmark price of $42.5 per barrel for the 2017 budget.
The other non-OPEC members that committed to reduce their respective oil production were Azerbaijan, Kingdom of Bahrain, Brunei Darussalam, Equatorial Guinea, Kazakhstan, Malaysia, Mexico, Sultanate of Oman, the Russian Federation, Republic of Sudan, and Republic of South Sudan.
The decision by the non-OPEC members on Saturday followed the November 30 deal by OPEC to cut output by 1.2 million bpd for six months from January 1, 2017 to curb the supply glut that had dogged markets for two years and boost prices.
This is the first deal by OPEC and its rivals since 2001 to jointly reduce output to try to tackle global oversupply.
The Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, had said oil prices at $60 per barrel would be “ideal” for OPEC as higher levels risk sparking a recovery in competing supplies from the United States.
The “urgency” felt by OPEC and its partners to end the oil rout would ensure they adhered to their December 10 agreement to cut supplies, Kachikwu said in a Bloomberg Television interview on Monday.
He said the accord should push prices a bit higher, yet not enough to trigger a comeback in the US shale.
“Sixty, I think would be ideal,” he said. “Once you begin to trend past the mid-$60s, you’re going to have a surfeit of shale producers jump back into the market. Technology is improving with shale every day, and so the cost of production is continuing to drop.”
Nigeria and Libya were exempted from any obligation to cut as both countries continue to suffer production losses from militant attacks and political instability.
Nigeria was working to revive production and expected that, once at full capacity, it might be required to lower output by 50,000 bpd if OPEC extended the agreement, Kachikwu said.
The country aims to pump 1.8 million to 1.9 million barrels of crude a day by the end of January, up from 1.6 million a day last month, according to him. It produces a further 300,000 barrels a day of light oil known as condensate.
Within the past two weeks, Nigeria’s Brass River oil terminal lifted a force majeure clause, in place since May, and the country would be expected to resume supplies of its Forcados grade in late January or early February, Kachikwu said.